Thread by @FnFGateFan

You're in for real treat today #Fanniegate Fans!

Today we start the rebuttal case with Dr Dharan re-taking the stand, he's been here the since day 2, has heard every word of the Ds case, and this time the gloves are coming off...

Ps: Did you hear Attari's and Satriano's testimony about the DTAs?
Dha: Yes
Ps: And did that change your opinion?
Dha: No
Ps: Attari said something about the DTA being only temporary?
Dha: He wasn't very clear, but got the accounting wrong. Once it comes in it stays as an asset

Dha [cont]: future income adds to the net worth without impacting the DTA, which basically just converts to a cash asset. For example, if you have $10 inc and would owe $3 tax but you keep $3 b/c of DTA, the value of the DTA goes down by $3 but the cash goes up by $3.

Ps: So the DTA goes down over time, but cash goes up to balance it?
Dha: Yes, once you add the DTA, that amount stays on the balance sheet as an asset, it doesn't go away it just converts to cash over time.
Ps: Satriano said only small profits in 1st/2nd quarter of 2012?

[shows slide w/ profits]
Ps: Are these small #'s?
Dha: No and they are all positive
Ps: Satriano said income was less than the dividends means they didn't make a profit. What would you say to anyone in this courtroom who was given the impression that inc<div means no profit?

Dha: That is incorrect, income is positive so that's a profit, less than the 10% dividend doesn't change the fact of positive income.
Ps: Does inc<div play any role in DTAs?
Dha: No. DTA has to do with income, nothing to do with income minus dividends.

Ps: If someone said Fannie made a small profit in 2Q would that be true?
Dha: The 2012 10K said profit was their largest in history
Ps: What does that suggest about 2Q2012?
Dha: It was very large

[pull up Dharan's demonstrative slides with quote]

"2012 comp. inc. will cover div"
Ps: You're an accountant?
Dha: Yes
Ps: And Satriano's an accountant?
Dha: Yes
Ps: But Attari isn't?
Dha: That's what he said in his deposition
Ps: What does this say about the DTA?
Dha: They are expecting profits, that's a big factor

Ps: Dr Attari criticized you for using the draft of Benson's projections.
Dha: Yes
Ps: Did you review all the versions?
Dha: Yes
Ps: Did any of those versions change your opinion?
Dha: No, I was focused on one #, remaining commitment, which was almost the same in all versions

Ps: You chose to present this draft version because it was in an email?
Dha: Yes, it was in an email to FHFA so we know they saw that one.
Ps: What line are you focused on?
Dha: Last line, remaining commitment.
Ps: Why?
Dha: That's the # they said they were concerned about...

Dha [cont]: ...but it only went down 6.5B over 10 years for Fannie and for Freddie it didn't go down at all, so this shows no circular draw concern
Ps: But there might be some circular draws?
Dha: There might be some
Ps: But no erosion of the commitment?

Dha: Nothing significant, $6.5B out of $278B
Ps: Did you ever once rely on the residual equity line in your analysis?
Dha: No, I didn't have to the whole focus was on the circular draws question.
Ps pull up an excerpt from the McFarland deposition that was acted out for the jury.

Ps: McFarland was asked "Was it clear at this time there would be a return to profitability?", she responded "I wouldn't say it was clear", then asked "Was there a high probability?" and she said "I would say it was probable."
Ds: Objection, cumulative

Ps: They may not like it Your Honor, but they attacked-
Ds: Objection!
Ps: I'm sorry...
[They go to the phones]
Ps: What did you take from that exchange?
Dha: This is where she used the phrase "more likely than not" and that's important in accounting.
Ps: Why is that important?

Dha: It says the likelihood of writing up DTA is more likely.
Ps pull up the Mayopolous transcript where he says "I think we endeavored to create what we thought were credible, reliable, reasonable projections."
Ps: Is that relevant to your analysis?
Dha: Yes

Ps pull up the projections shown the the board of Fannie.
Ps: You see this is the final version?
Dha: Yes
Ps: Same as you presented?
Dha: Some minor changes, but not significant on the remaining commitment line I relied on
Ps: Fact that this was shown to the board significant?

Dha: It supports my conclusions.
Ps also pull up treasury slides showing Freddie projections, again only minor differences on the remaining commitment line.
Ds: Objection, outside scope, we didn't talk about this
Ps: This is responding to a direct attack that Dharan didn't...

Ps [cont]: ...use the appropriate docs.
L: Overruled
Ps pull up a slide that Dharan made that morning showing the remaining commitment in 2012 and various projections from 6.5B to 8.7B used over the next decade from the different versions, differences are clearly negligible.

Ps: Any change in your opinion from all this?
Dha: Not at all
Ps: And these still would need to be updated to include the DTAs?
Dha: Yes, once we add the DTA of $74.4B, that raises the total funding available and now the net worth deficit comes from the DTA and they don't touch

Dha [cont]: the commitment at all over the 10 year period.
Ps: Do you recall Benson talking about marketing?
Dha: Yes, he said "marketing spin"
Ps show Dharan the transcript
Ps: This is where Benson says something about marketing spin right?
Dha: Yes

Ps: Does this change your opinion?
Dha: No, the "spin" was just calling the time when cumulative dividends exceeded draws a "repayment", as a way to tell the public that the govt had got same amount back that they had paid in.

Ps: Recall Benson talking about the "golden years"?
Dha: Yes
Ps: Have you looked at the actual results from that period?
Dha: Yes
Ps: Were they better or worse than projected?
Dha: Much better, even in 2012 they were better than projected

Ps: So if anyone in this courtroom thought that the "golden years" hadn't happened would that be right or wrong?
Dha: Wrong, it was actually even better
Ps: Even better than what they called the "golden years" projection?
Dha: Yes

Ps: What is securitization?
Dha: Some mortgages they put in MBS, some they hold on to, and retained portfolio (RP) is a buffer to put loans in and try to fix them
Ps: Satriano and Attari said they would shrink the RP?
Dha: Yes
Ps: They said as a result you would have less profit?

Dha: Yes, they said that
Ps: Do you have an opinion?
Dha: Yes I do, the RP helps them with the guarantee business, if you shrink the RP that makes it more difficult and that can lead to higher g-fees, and that is in fact what happened, so this isn't hypothetical

Ps: So were they correct about shrinking income from shrinking the RP?
Dha: Its an incomplete picture, it ignores connections. As the RP shrank they increased the g-fee and overall profits actually increased.

Ps: Did Dr. Attari present any projections more reliable than the ones you relied on?
Dha: No.
Ps: Do you recall the PIK discussion?
Dha: Yes
Ps: What was your opinion?
Dha: Its correct that when you don' pay the 10% the liq. pref. goes up and then you pay 12% on liq. pref.

Ps: And Attari agreed that PIK wouldn't change the commitment?
Dha: Yes
Ps: But the liq pref goes up?
Dha: Yes
Ps: What did he say about liq pref, would bond holders care?
Dha: No, he agreed bond holders wouldn't care, since they were senior to liq. pref and Attari agreed w/ that

Ps: Did you hear anything from Attari that discounted the PIK option?
Dha: No, nothing
Ps: Do you recall Attari showing any docs saying FHFA/Tsy were concerned about the bond market?
Ps: I don't recall anything, I don' think so

Ps: Do you recall the yield spread discussion?
Dha: Yes, he said if the 3rd amendment hadn't happened, spreads would have increased but didn't provide any evidence to support that.

[slide] Atari's Opinion on Yield Decline Ignores:
(1) Implied guarantee govt. would honor GSE's obligations
(2) Bonds Attari looked at had lower spreads than Aaa bonds
(3) Spreads were already declining
(4) Bonds studied were not typical long-term GSE bonds
(5) Only 13bps drop

Ps: He said spreads dropped faster, did he provide any analysis?
Dha: No
Ps: Did Attari show any evidence of a concern in the bond market alleviated by the 3rd amendment?
Dha: No
Ps: You've studied the results of FnF until 2020, would they have needed any draws w/o NWS?
Dha: No

Ps: Attari said they [FnF] were better off with the NWS?
Dha: Yes, he said that
Ps: And DeMarco said they were better off?
Dha: Yes
Ps: One more question, did Attari show any evidence they would be better w/ 3rd amendment that w/o it?
Dha: No.

I don't think the power of this exchange came across in the write up, but it was devastating. Dharan's tone expressed exasperation at the foolish opinions of the opposition witnesses. It was like he was the only adult in a room of children trying to get away with some mischief.

The questions came fast, and his responses were immediate and full of confidence. Hamish and Dharan have a perfect rhythm that creates a perfect resonance shattering the delicate construct of the Ds arguments.

At this point it was 2pm and the jury was released early.

Lamberth said he sends all the evidence back with the jury. Transcripts and demonstratives will not go back, and the Ps have moved certain demonstrative slides they want the jury to have into evidence.

There was a minor crisis as a miscommunication meant that Dharan hadn't yet been cross examined and was supposed to be back home to teach on Monday. Lamberth said that if he couldn't voluntarily adjust his schedule he would have to be ordered back.

The rebuttal case continues Monday with Dharan's cross, then Dr. Mason for about 5 min. and Dr. Thakor for about 20 minutes. The Berkley plaintiffs representative will come back briefly and a deposition from Grant Thornton will be introduced.

Closings will be about 1.5 hours with 30 min rebuttals, so it will be a full day but they plan to send it to the jury Monday. Lamberth said he wouldn't decided on jury instructions until evidence closes, so that will happen sometime in the middle of the day Monday presumably.

Ds: Issue of VA penalty interest, Ps included that in their proposed instructions and we've updated our proposed instructions to include it. We propose deleting our instruction on nominal damages, that doesn't apply here. Our verdict form doesn't include the penalty interest...

Ds [cont]: so we can add that. We are ok with Ps version with just a few changes. Ps asked for judicial notice about whether some bill was out of senate committee, that DeMarco referenced, we can and will file a rebuttal this weekend if helpful?
L: That would be helpful.

That's it for Friday folks! It's all coming down to Monday. No one knows how long the jury will deliberate, but personally I suspect they are ready to go home and this will be an short deliberation. We'll see!

Sorry, this meant 1.5 hours for each side with an additional 30 mins for rebuttal for each side, so 2 hours each and 4 hours total.